AB 2647, as introduced, Eduardo Garcia. Income taxation: insurance taxation: credits: California New Markets Tax Credit.
Existing federal law allows a New Markets Tax Credit to a taxpayer holding a qualified equity investment in an amount equal to the applicable percentage of the amount paid to the qualified community development entity for investment in low-income communities.
The state Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws. Existing state constitutional law governing insurance taxation imposes an annual tax on the gross premiums of an insurer, as defined, doing business in this state at specified rates.
Existing law establishes the Governor’s Office of Business and Economic Development, also known as “ GO-Biz,” to, among other things, serve the Governor as the lead entity for economic strategy and the marketing of
California on issues
relating to business development, private sector investment, and economic growth.
This bill would allow a California New Markets Tax Credit under the Personal Income Tax Law and the Corporation Tax Law, and the law governing insurance taxation, in modified conformity with a federal New Markets Tax Credit, for taxable years beginning on or after January 1, 2017, and before January 1, 2029, in a specified amount for investments in low-income communities. The bill would limit the total annual amount of credit allowed pursuant to these provisions to an amount equal to any portion not granted under a specified sales and use tax exclusion, not to exceed $40,000,000 per calendar year, and would limit the allocation of the credit to a cumulative total of no more than $200,000,000, as provided. The bill would impose specified duties on GO-Biz with regard to the application for, and allocation of, the credit. The bill would require GO-Biz to establish and impose reasonable fees upon entities that apply for the allocation of the credit, to be deposited in the California New Markets Tax Credit Fund established by the bill, and use the revenue, upon annual appropriation by the Legislature, to defray the cost of applying to, and administering the credits, as specified. The bill would only authorize the allocation for these credits for those taxable years for which moneys are appropriated to GO-Biz to administer these credits for those taxable years.
Existing law requires any bill authorizing a new personal or corporation income tax credit to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements, as provided.
This bill would also include that additional information required for any bill authorizing a new personal or corporation income tax credit.
The bill would provide that its provisions are severable.
This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
The Legislature finds and declares the following:
2(a) While many areas of California have recovered from the
3economic and community development impacts of the 2006
4Financial Crisis and the 2010 global recession, Californians in a
5number of communities and neighborhoods are still experiencing
6their lingering effects. In some cases this has resulted in small and
7medium businesses in low-income areas lacking sufficient access
P3 1to capital and technical assistance. Given that the state has many
2needs and limited resources, moneys from the private sector are
3necessary to fill this capital and investment gap.
4(b) Initially enacted in
2000, the federal government established
5the New Markets Tax Credit (NMTC) Program, which uses a
6market-based approach for expanding capital and technical
7assistance to businesses in lower income communities. The federal
8program is jointly administered by the Community Development
9Financial Institutions Fund (CDFI Fund) and the Internal Revenue
10Service. The NMTC Program allocates federal tax incentives to
11community development entities (CDE), which they then use to
12attract private investors who contribute funds that can be used to
13finance and invest in businesses and develop real estate in
14low-income communities. Through the 2013-14 funding round,
15the CDFI Fund had awarded approximately forty billion dollars
16($40,000,000,000) in NMTC in 836 awards, including three billion
17dollars ($3,000,000,000) in American Recovery and Investment
18Act of 2009 awards and one billion dollars ($1,000,000,000) of
19special allocation authority to be used for the recovery and
20redevelopment of the Gulf Opportunity Zone.
21(c) The federal NMTC totals 39 percent of the original
22investment amount in the CDE and is claimed over a period of
23seven years (5 percent for each of the first three years, and 6
24percent for each of the remaining four years). Any investment by
25any taxpayer in the CDE redeemed before the end of the seven-year
26period will be recaptured.
27(d) Fourteen states in the United States have adopted state
28programs using the NMTC model including Alabama, Florida,
29Illinois, Nevada, and Oregon. While some of the programs
30substantially mirror the federal program, others vary in both the
31percentage of the credit and some of the policies that form the
32foundation of the credit. One of the reasons cited for establishing
33state-level programs is to make a state more attractive to CDEs,
34which results in increasing the amount of federal NMTCs being
35utilized in a state. Further, several studies, including a
January 1,
362011, case study by Pacific Community Ventures, showed that for
37every dollar of forgone tax revenue, the federal NMTC leverages
38$12 to $14 of private investment.
Section 26011.9 is added to the Public Resources Code,
40to read:
The authority shall make a determination of the
2amount of the one hundred million dollars ($100,000,000) in
3exclusions not granted in the assigned calendar year pursuant to
4Section 26011.8. An amount equal to that amount but not to exceed
5forty million dollars ($40,000,000) shall be granted in the
6subsequent calendar year through the California New Markets Tax
7Credit Program pursuant to Sections 12283, 17053.9, and 23622.9
8of the Revenue and Taxation Code. This section shall not prevent
9a taxpayer granted an exclusion pursuant to Section 6010.8 of the
10Revenue and Taxation Code from applying for, and receiving a
11refund for, taxes paid under Part 1 (commencing with Section
126001) of Division 2 of the Revenue and Taxation Code.
Section 12283 is added to the Revenue and Taxation
14Code, to read:
(a) There is hereby created the California New Markets
16Tax Credit Program as provided in this section, Section 17053.9,
17and Section 23622.9. The purpose of this program is to stimulate
18private sector investment in lower income communities by
19providing a tax incentive to community and economic development
20entities that can be leveraged by the entity to attract private sector
21investment that in turn will be deployed by providing financing
22and technical assistance to small- and medium-size businesses and
23the development of commercial, industrial, and community
24development projects, including, but not limited to, facilities for
25nonprofit service organizations, light manufacturing, and mixed-use
26and transit-oriented development. GO-Biz shall administer this
27program as
provided in this section, Section 17053.9, and Section
2823622.9. The Director of GO-Biz may delegate the administration
29of all or portions of the program within GO-Biz.
30(b) (1) For taxable years beginning on or after January 1, 2017,
31and before January 1, 2029, and subject to subdivision (h), there
32shall be allowed as a credit against the tax described in Section
3312201, in an amount determined in accordance with Section 45D
34of the Internal Revenue Code, relating to the new markets tax
35credit, as modified in this section.
36(2) For the purposes of this section, “GO-Biz” means the
37Governor’s Office of Business and Economic Development.
38(c) Section 45D of the Internal Revenue Code is modified as
39follows:
P5 1(1) Section 45D(a)(2) of the
Internal Revenue Code, relating to
2applicable percentage, is modified by substituting for “(A) 5
3percent with respect to the first 3 credit allowance dates, and (B)
46 percent with respect to the remainder of the credit allowance
5dates” with the following:
6(A) Zero percent with respect to the first two credit allowance
7dates.
8(B) Seven percent with respect to the third credit allowance
9date.
10(C) Eight percent with respect to the remainder of the credit
11allowance dates.
12(2) (A) Section 45D(c)(1) of the Internal Revenue Code, relating
13to qualified community development entity, is modified to only
14include a qualified community development entity, that is certified
15by the Secretary of the Treasury, and its subsidiary qualified
16community
development entities that have entered into an
17allocation agreement with the Community Development Financial
18Institutions Fund of the United States Treasury Department, with
19respect to credits authorized by Section 45D of the Internal
20Revenue Code, that includes California within the service area and
21is dated on or after January 1, 2012.
22(B) Section 45D(c)(2) of the Internal Revenue Code, relating
23to special rules for certain organizations, is modified to only
24include a specialized small business investment company or
25community development financial institution that entered into an
26allocation agreement with the Community Development Financial
27Institutions Fund of the United States Treasury Department, with
28respect to credits authorized by Section 45D of the Internal
29Revenue Code, that includes California within the service area and
30is dated on or after January 1, 2012.
31(3) The
term “qualified active low-income community business,”
32as defined in Section 45D(d)(2) of the Internal Revenue Code, is
33modified as follows:
34(A) By substituting “any low-income community in California”
35for “any low-income community” every place it appears in Section
3645D of the Internal Revenue Code.
37(B) A qualified active low-income community business shall
38not include any business that derives, or projects to derive, 15
39percent or more of its annual revenue from the rental or sale of
40real estate. This exclusion does not apply to a business that is
P6 1controlled by, or under common control with, another business if
2the second business: (i) does not derive or project to derive 15
3percent or more of its annual revenue from the rental or sale of
4real estate; and (ii) is the primary tenant of the real estate leased
5from the first business.
6(C) A qualified active low-income community business shall
7only include a business that, at the time the initial investment is
8made, has 250 or fewer employees and is located in one or more
9California low-income communities. The operating business shall
10meet all other conditions of a qualified active low-income
11community business, except as modified by this paragraph. This
12requirement does not apply to a business that is located on land
13and is controlled by, or under common control with, a federally
14recognized tribe.
15(D) A qualified active low-income community business shall
16only include a business located in census tracts with a poverty rate
17greater than 30 percent, or census tracts, if located within a
18nonmetropolitan area, with a median family income that does not
19exceed 60 percent of median family income for this state, or census
20tracts, if located within a metropolitan area, with a
median family
21income that does not exceed 60 percent of the greater of the
22California median family income or the metropolitan area median
23family income, or census tracts with unemployment rates at least
241.5 times the national average.
25(E) A qualified active low-income community business shall
26not include any business that operates or derives revenues from
27the operation of a country club, gaming establishment, massage
28parlor, liquor store, or golf course.
29(F) A qualified active low-income community business shall
30not include a sexually oriented business. A “sexually oriented
31business” means a nightclub, bar, restaurant, or similar commercial
32enterprise that provides for an audience of two or more individuals
33live nude entertainment or live nude performances where the nudity
34is a function of everyday business operations and where nudity is
35a planned and intentional part of the
entertainment or performance.
36“Nude” means clothed in a manner that leaves uncovered or visible,
37through less than fully opaque clothing, any portion of the genitals
38or, in the case of a female, any portion of the breasts below the
39top of the areola of the breasts.
P7 1(G) A qualified active low-income community business shall
2not include a charter school.
3(4) Section 45D(f) of the Internal Revenue Code, relating to
4national limitation on amount of investments designated, is
5modified as follows:
6(A) The following shall apply in lieu of the provisions of Section
745D(f)(1) of the Internal Revenue Code: The aggregate amount
8of qualified equity investments that may be allocated in any
9calendar year for purposes of this section, Section 17053.9, and
10Section 23622.9 shall be an amount as determined by GO-Biz in
11consultation
with the Department of Finance based upon any
12unused portion of the one hundred million dollars ($100,000,000)
13in exclusions, authorized pursuant to Section 6010.8, as determined
14by the California Alternative Energy and Advanced Transportation
15Financing Authority pursuant to Section 26011.9 of the Public
16Resources Code and reported to GO-Biz, not to exceed an amount
17based upon a credit of forty million dollars ($40,000,000). GO-Biz
18shall limit the allocation of investments that may be designated
19under this section, Section 17053.9, and Section 23622.9 to a
20cumulative total amount based on credits of no more than two
21hundred million dollars ($200,000,000). The allocation of any
22undesignated qualified equity investments shall be returned to
23GO-Biz by March 1 of the year following allocation and the value
24of the undesignated qualified equity investment shall be available
25for allocation in the following calendar years in accordance with
26the application process. Any qualified equity investment
27attributable to
recaptured credits shall be available to GO-Biz on
28March 1 of the year following recapture and shall be available for
29allocation in the following calendar years in accordance with
30subparagraph (B) of paragraph (5). Reallocated qualified equity
31investments attributable to recapture credits shall not count against
32the annual or the cumulative limit.
33(B) The references to “the Secretary” in Section 45D(f)(2) of
34the Internal Revenue Code, relating to allocation of limitation, is
35modified to read “GO-Biz.”
36(C) The last sentence of Section 45D(f)(3) of the Internal
37Revenue Code, relating to carryover of unused limitation, shall
38not apply.
39(5) Section 45D(g)(3) of the Internal Revenue Code, relating
40to recapture event, is modified to add the following:
P8 1(A) The
qualified community development entity fails to comply
2with subparagraph (D) of paragraph (5) of subdivision (d). In this
3case, recapture shall be 100 percent of the credit.
4(B) GO-Biz shall establish a process, in consultation with the
5Department of Insurance, for the recapture of credits allowed under
6this section from the entity that claimed the credit on a return.
7(C) Recaptured qualified equity investments revert back to
8GO-Biz and shall be reissued. The reissue shall not count toward
9the annual or cumulative allocation limitation. The reissue shall
10be done in the following order:
11(i) First, pro rata to applicants whose qualified equity investment
12allocations were reduced pursuant to subparagraph (F) of paragraph
13(5) of subdivision (d) by the annual allocation limitation.
14(ii) Thereafter, in accordance with the application process.
15(D) Enforcement of each of the recapture provisions shall be
16subject to a six-month cure period.
17(d) (1) GO-Biz shall adopt guidelines necessary or appropriate
18to carry out its responsibilities with respect to the allocation,
19monitoring, and management of the tax credit program authorized
20by this section.
21(2) (A) GO-Biz shall establish and impose reasonable fees upon
22entities that apply for the allocation pursuant to this subdivision
23that in the aggregate defray the cost of reviewing applications for
24the program. GO-Biz may impose other reasonable fees upon
25entities that receive the allocation pursuant to this subdivision that
26in the aggregate defray
the cost of administering the program.
27(B) The fees collected shall be deposited in the California New
28Markets Tax Credit Fund established in Section 18410.3.
29(3) In developing guidelines, GO-Biz shall adopt an allocation
30process that does all of the following:
31(A) Creates an equitable distribution process that ensures that
32low-income community populations across the state have an
33opportunity to benefit from the program.
34(B) Sets minimum organizational capacity standards that
35applicants must meet in order to receive an allocation of authority
36to designate qualified equity investments including, but not limited
37to, its business strategy, targeted community outcomes,
38capitalization strategy, and management capacity.
P9 1(C) Considers the qualified community development entity’s
2prior qualified low-income community investments under Section
345D of the Internal Revenue Code.
4(D) Considers the qualified community development entity’s
5prior qualified low-income community investments under this
6section, including subparagraph (D) of paragraph (5).
7(4) (A) Subject to subdivision (h), GO-Biz shall begin accepting
8applications on or before May 15, 2017, and shall award authority
9to designate qualified equity investments annually through 2029.
10(B) In the instance where GO-Biz determines that an application
11is incomplete, the qualified community development entity shall
12be given five business days to provide the omitted information.
13(5) (A) In the 2017 awards cycle, GO-Biz shall award authority
14to designate qualified equity investments to qualified community
15development entities described in paragraph (2) of subdivision (c)
16in the order applications are received by GO-Biz. Applications
17received on the same day shall be deemed to have been received
18simultaneously.
19(B) In the 2018 to 2029 award cycles, inclusive, at least 60
20percent of the authority to designate qualified equity investments
21shall be awarded pursuant to subparagraph (A). At the discretion
22of GO-Biz, a higher percentage of authority to designate qualified
23equity investments may be awarded pursuant to subparagraph (A).
24(C) GO-Biz shall award up to 40 percent of the authority to
25designate qualified equity investments in the 2018 to 2029,
26inclusive, award cycles, to
qualified community development
27entities on a competitive basis using blind scoring and a review
28committee that is composed of community development finance
29practitioners and members having demonstrated experience in
30assessing organizational business strategy, community outcomes,
31capitalization strategy, and management capacity. A member of
32the review committee shall not have a financial interest, which
33includes, but is not limited to, asking, consenting, or agreeing to
34receive any commission, emolument, gratuity, money, property,
35or thing of value for his or her own use, benefit, or personal
36advantage for procuring or endeavoring to procure for any person,
37partnership, joint venture, association, or corporation any qualified
38equity investment or other assistance from any applicant.
39(D) (i) For qualified equity investments derived from the 2017
40to 2029, inclusive, awards cycles, pursuant to subparagraphs (A),
P10 1(B), and (C),
a qualified community development entity shall invest
2at least 15 percent of the qualified equity investment in a qualified
3low-income community business in consultation or in partnership
4with either of the following:
5(I) A qualified community development entity certified under
6Section 45D of the Internal Revenue Code that has not received a
7federal New Markets Tax Credit allocation on or after January 1,
82012, and has either a local service area that includes one or more
9California communities or a California statewide service area, but
10excluding qualified community development entities with a
11national service area.
12(II) A nonprofit organization that does the following:
13(ia) Is tax exempt under Section 23701.
14(ib) Is registered with the Registry of
Charitable Trusts, which
15is administered by the Attorney General.
16(ic) Has articles of incorporation or articles of organization that
17state the primary mission of the organization is focused on
18improving the economic well-being of low-income communities
19or individuals.
20(id) Has bylaws that provide that the organization maintains
21accountability to residents of low-income communities through
22their representation on any governing board or on an advisory
23board of the nonprofit organization.
24(ii) The 15-percent investment shall be calculated by multiplying
25the total purchase price of the qualified equity investments issued
26by the qualified community development entity by 15 percent.
27Each community development entity application shall indicate
28how the qualified community development entity will meet this
29requirement.
30(E) In making competitive awards of authority to designate
31qualified equity investments, priority shall be given to applications
32that can demonstrate that the qualified equity investment authority
33will allow the qualified community development entity to undertake
34qualified low-income community investments in rural, suburban,
35or urban areas that have been historically underserved and result
36in the primary benefit to the hardest to serve and undercapitalized
37lower income populations, or in activities that support
38neighborhood revitalization strategies driven by local grassroots
39stakeholders in multiple low-income communities across one or
40more regions or the state for the purpose of scaling economic
P11 1development activities that compliment regional industry clusters
2that result in the greatest benefit to the largest number of lower
3income individuals.
4(F) (i) For
applications described in subparagraph (A), in the
5event requests for authority to designate qualified equity
6investments exceed the applicable annual allocation limitation,
7GO-Biz shall certify, consistent with remaining qualified equity
8investment capacity, qualified equity investments of applicants in
9proportionate percentages based upon the ratio of the amount of
10qualified equity investments requested in such applications to the
11total amount of qualified equity investments requested in all such
12applications received on the same day.
13(ii) If a pending request cannot be fully certified due to this
14limit, GO-Biz shall certify the portion that may be certified unless
15the qualified community development entity elects to withdraw
16its request rather than receive partial certification.
17(G) An approved applicant may transfer all or a portion of its
18certified qualified equity investment
authority to its controlling
19entity or any subsidiary qualified community development entity
20of the controlling entity, provided that the applicant and the
21transferee notify GO-Biz within 30 calendar days of such transfer
22and include the information required in the application with respect
23to such transferee with such notice. The transferee shall be subject
24to the same rules, requirements, and limitations applicable to the
25transferor.
26(H) Within 200 calendar days of GO-Biz sending notice of
27certification, the qualified community development entity or any
28transferee, under subparagraph (G), shall issue the qualified equity
29investment and receive cash in the amount of the certified amount.
30The qualified community development entity or transferee, under
31subparagraph (G), shall provide GO-Biz with evidence of the
32receipt of the cash investment within 205 calendar days of the
33applicant receiving notice of certification. If the qualified
34community
development entity or any transferee, under
35subparagraph (G), does not receive the cash investment and issue
36the qualified equity investment within 200 calendar days of GO-Biz
37sending the certification notice, the certification shall lapse and
38the entity may not issue the qualified equity investment without
39reapplying to GO-Biz for certification. Lapsed certifications revert
40back to GO-Biz and shall be reissued in the following order:
P12 1(i) First, pro rata to applicants whose qualified equity investment
2allocations were reduced pursuant to subparagraph (F) under the
3annual allocation limitation of forty million dollars ($40,000,000)
4in paragraph (4) of subdivision (c).
5(ii) Thereafter, in accordance with the application process.
6(I) A qualified community development entity that issues
7qualified equity investments shall
notify GO-Biz of the names of
8taxpayers that are eligible to utilize tax credits pursuant to this
9section and any transfer of a qualified equity investment.
10(6) (A) A qualified community development entity that issues
11qualified equity investments shall submit a report to GO-Biz that
12provides documentation as to the investment of at least 85 percent
13of the funds being deployed within one year in qualified
14low-income community investments in qualified active low-income
15community businesses located in California. Such report shall
16include all of the following:
17(i) A bank statement of such qualified community development
18entity evidencing each qualified low-income community
19investment.
20(ii) Evidence that such business was a qualified active
21low-income community business at the time of such qualified
22
low-income community investment.
23(iii) Evidence that the community development entity complied
24with subparagraph (D) of paragraph (5).
25(iv) Evidence that each qualified low-income community
26investment was determined to have a positive revenue impact on
27the state. This requirement does not apply to reinvestments of
28redeemed qualified low-income investments.
29(v) Any other information required by GO-Biz as being
30necessary to meet the requirements of this section.
31(B) Thereafter, the qualified community development entity
32shall submit an annual report to GO-Biz during the seven years
33following submittal of the report, pursuant to subparagraph (A).
34No annual report shall be due prior to the first anniversary of the
35initial credit allowance date. The report
shall include, but is not
36limited to, the following:
37(i) The social, environmental, and economic impact the credit
38had on the low-income community during the report period and
39cumulatively.
P13 1(ii) The amount of moneys used for qualified low-income
2investments in qualified low-income community businesses.
3(iii) The number of employment positions created and retained
4as a result of qualified low-income community investments and
5the average annual salary of such positions.
6(iv) The number of operating businesses assisted as a result of
7qualified low-income community investments, by industry and
8number of employees.
9(v) Number of owner-occupied real estate projects.
10(vi) Location of each qualified low-income community business
11assisted by a qualified low-income community investment.
12(vii) Summary of the outcomes of each of the revenue impact
13assessments undertaken by the qualified community development
14entity during the year.
15(viii) Any other information requested by GO-Biz.
16(e) (1) In the case where the credit allowed by this section
17exceeds the tax described in Section 12201, the excess may be
18carried over to reduce that tax in the following year, and the six
19succeeding years if necessary, until the credit is exhausted.
20(2) A taxpayer allowed a credit under this section for a qualified
21equity investment shall not be eligible for
any other credit under
22this part with respect to that investment.
23(3) The credit allowed under this section may be in addition to
24any credit allowed under Section 45D of the Internal Revenue
25Code.
26(f) GO-Biz shall annually report on its Internet Web site the
27information provided by low-income community development
28entities and on the geographic distribution of the qualified active
29low-income community businesses assisted.
30(g) (1) The Insurance Commissioner may prescribe any rules
31or regulations that may be necessary or appropriate to implement
32this section. The Insurance Commissioner shall have access to any
33documentation held by GO-Biz relative to the application and
34reporting of a qualified community development entity.
35(2) A
qualifying community development entity shall provide
36GO-Biz with the name, address, and tax identification number of
37each investor and entity for which a qualified equity investment
38was designated by the qualifying community development entity,
39pursuant to this section. GO-Biz shall provide this information to
P14 1the Insurance Commissioner in a manner determined by the
2Insurance Commissioner.
3(h) (1) The credit authorized by this section shall only be
4allowed for those taxable years for which moneys are appropriated
5to GO-Biz to administer the California New Markets Tax Credit
6pursuant to 18410.3 for that taxable year. The appropriation shall
7specifically identify the California New Markets Tax Credit.
8(2) For those taxable years for which those moneys are
9appropriated pursuant to subdivision (1), GO-Biz shall post notice
10of the appropriation on the homepage of
its Internet Web site and
11send notice of such appropriation to the Secretary of State and the
12Legislative Counsel.
13(i) This section shall be repealed on December 1, 2029.
Section 17053.9 is added to the Revenue and Taxation
15Code, to read:
(a) There is hereby created the California New
17Markets Tax Credit Program as provided in this section, Section
1812283, and Section 23622.9. The purpose of this program is to
19stimulate private sector investment in lower income communities
20by providing a tax incentive to community and economic
21development entities that can be leveraged by the entity to attract
22private sector investment that in turn will be deployed by providing
23financing and technical assistance to small- and medium-size
24businesses and the development of commercial, industrial, and
25community development projects, including, but not limited to,
26facilities for nonprofit service organizations, light manufacturing,
27and mixed-use and transit-oriented development. GO-Biz shall
28administer this program as
provided in this section, Section 12283,
29and Section 23622.9. The Director of GO-Biz may delegate the
30administration of all or portions of the program within GO-Biz.
31(b) (1) For taxable years beginning on or after January 1, 2017,
32and before January 1, 2029, and subject to subdivision (h), there
33shall be allowed as a credit against the “net tax,” as defined in
34Section 17039, in an amount determined in accordance with Section
3545D of the Internal Revenue Code, relating to the new markets tax
36credit, as modified in this section.
37(2) For the purposes of this section, “GO-Biz” means the
38Governor’s Office of Business and Economic Development.
39(c) Section 45D of the Internal Revenue Code is modified as
40follows:
P15 1(1) Section 45D(a)(2) of
the Internal Revenue Code, relating to
2applicable percentage, is modified by substituting for “(A) 5
3percent with respect to the first 3 credit allowance dates, and (B)
46 percent with respect to the remainder of the credit allowance
5dates” with the following:
6(A) Zero percent with respect to the first two credit allowance
7dates.
8(B) Seven percent with respect to the third credit allowance
9date.
10(C) Eight percent with respect to the remainder of the credit
11allowance dates.
12(2) (A) Section 45D(c)(1) of the Internal Revenue Code, relating
13to qualified community development entity, is modified to only
14include a qualified community development entity, that is certified
15by the Secretary of the Treasury, and its subsidiary qualified
16
community development entities that have entered into an
17allocation agreement with the Community Development Financial
18Institutions Fund of the United States Treasury Department, with
19respect to credits authorized by Section 45D of the Internal
20Revenue Code, that includes California within the service area and
21is dated on or after January 1, 2012.
22(B) Section 45D(c)(2) of the Internal Revenue Code, relating
23to special rules for certain organizations, is modified to only
24include a specialized small business investment company or
25community development financial institution that entered into an
26allocation agreement with the Community Development Financial
27Institutions Fund of the United States Treasury Department, with
28respect to credits authorized by Section 45D of the Internal
29Revenue Code, that includes California within the service area and
30is dated on or after January 1, 2012.
31(3) The term “qualified active low-income community business,”
32as defined in Section 45D(d)(2) of the Internal Revenue Code, is
33modified as follows:
34(A) By substituting “any low-income community in California”
35for “any low-income community” every place it appears in Section
3645D of the Internal Revenue Code.
37(B) A qualified active low-income community business shall
38not include any business that derives, or projects to derive, 15
39percent or more of its annual revenue from the rental or sale of
40real estate. This exclusion does not apply to a business that is
P16 1controlled by, or under common control with, another business if
2the second business: (i) does not derive or project to derive 15
3percent or more of its annual revenue from the rental or sale of
4real estate; and (ii) is the primary tenant of the real estate leased
5from the first business.
6(C) A qualified active low-income community business shall
7only include a business that, at the time the initial investment is
8made, has 250 or fewer employees and is located in one or more
9California low-income communities. The operating business shall
10meet all other conditions of a qualified active low-income
11community business, except as modified by this paragraph. This
12requirement does not apply to a business that is located on land
13and is controlled by, or under common control with, a federally
14recognized tribe.
15(D) A qualified active low-income community business shall
16only include a business located in census tracts with a poverty rate
17greater than 30 percent, or census tracts, if located within a
18nonmetropolitan area, with a median family income that does not
19exceed 60 percent of median family income for this state, or census
20tracts, if located within a metropolitan area,
with a median family
21income that does not exceed 60 percent of the greater of the
22California median family income or the metropolitan area median
23family income, or census tracts with unemployment rates at least
241.5 times the national average.
25(E) A qualified active low-income community business shall
26not include any business that operates or derives revenues from
27the operation of a country club, gaming establishment, massage
28parlor, liquor store, or golf course.
29(F) A qualified active low-income community business shall
30not include a sexually oriented business. A “sexually oriented
31business” means a nightclub, bar, restaurant, or similar commercial
32enterprise that provides for an audience of two or more individuals
33live nude entertainment or live nude performances where the nudity
34is a function of everyday business operations and where nudity is
35a planned and intentional part of
the entertainment or performance.
36“Nude” means clothed in a manner that leaves uncovered or visible,
37through less than fully opaque clothing, any portion of the genitals
38or, in the case of a female, any portion of the breasts below the
39top of the areola of the breasts.
P17 1(G) A qualified active low-income community business shall
2not include a charter school.
3(4) Section 45D(f) of the Internal Revenue Code, relating to
4national limitation on amount of investments designated, is
5modified as follows:
6(A) The following shall apply in lieu of the provisions of Section
745D(f)(1) of the Internal Revenue Code: The aggregate amount
8of qualified equity investments that may be allocated in any
9calendar year for purposes of this section, Section 12283, and
10Section 23622.9 shall be an amount as determined by GO-Biz in
11consultation
with the Department of Finance based upon any
12unused portion of the one hundred million dollars ($100,000,000)
13in exclusions, authorized pursuant to Section 6010.8, as determined
14by the California Alternative Energy and Advanced Transportation
15Financing Authority pursuant to Section 26011.9 of the Public
16Resources Code and reported to GO-Biz, not to exceed an amount
17based upon a credit of forty million dollars ($40,000,000). GO-Biz
18shall limit the allocation of investments that may be designated
19under this section, Section 12283, and Section 23622.9 to a
20cumulative total amount based on credits of no more than two
21hundred million dollars ($200,000,000). The allocation of any
22undesignated qualified equity investments shall be returned to
23GO-Biz by March 1 of the year following allocation and the value
24of the undesignated qualified equity investment shall be available
25for allocation in the following calendar years in accordance with
26the application process. Any qualified equity investment
27attributable to
recaptured credits shall be available to GO-Biz on
28March 1 of the year following recapture and shall be available for
29allocation in the following calendar years in accordance with clause
30(ii) of subparagraph (B) of paragraph (5). Reallocated qualified
31equity investments attributable to recapture credits shall not count
32against the annual or the cumulative limit.
33(B) The references to “the Secretary” in Section 45D(f)(2) of
34the Internal Revenue Code, relating to allocation of limitation, is
35modified to read “GO-Biz.”
36(C) The last sentence of Section 45D(f)(3) of the Internal
37Revenue Code, relating to carryover of unused limitation, shall
38not apply.
P18 1(5) (A) Section 45D(g)(2)(B) of the Internal Revenue Code,
2relating to credit recapture amount, is modified to substitute
3“Section 19101 of this code”
for “Section 6621.”
4(B) Section 45D(g)(3) of the Internal Revenue Code, relating
5to recapture event, is modified to add the following:
6(i) The qualified community development entity fails to comply
7with subparagraph (D) of paragraph (5) of subdivision (d). In this
8case, recapture shall be 100 percent of the credit.
9(ii) GO-Biz shall establish a process, in consultation with the
10Franchise Tax Board, for the recapture of credits allowed under
11this section from the entity that claimed the credit on a return.
12(iii) Recaptured qualified equity investments revert back to
13GO-Biz and shall be reissued. The reissue shall not count toward
14the annual or cumulative allocation limitation. The reissue shall
15be done in the following order:
16(I) First, pro rata to applicants whose qualified equity
17investment allocations were reduced pursuant to subparagraph (F)
18of paragraph (5) of subdivision (d) by the annual allocation
19limitation.
20(II) Thereafter, in accordance with the application process.
21(iv) Enforcement of each of the recapture provisions shall be
22subject to a six-month cure period.
23(d) (1) GO-Biz shall adopt guidelines necessary or appropriate
24to carry out its responsibilities with respect to the allocation,
25monitoring, and management of the tax credit program authorized
26by this section.
27(2) (A) GO-Biz shall establish and impose reasonable fees upon
28entities that apply for the
allocation pursuant to this subdivision
29that in the aggregate defray the cost of reviewing applications for
30the program. GO-Biz may impose other reasonable fees upon
31entities that receive the allocation pursuant to this subdivision that
32in the aggregate defray the cost of administering the program.
33(B) The fees collected shall be deposited in the California New
34Markets Tax Credit Fund established in Section 18410.3.
35(3) In developing guidelines, GO-Biz shall adopt an allocation
36process that does all of the following:
37(A) Creates an equitable distribution process that ensures that
38low-income community populations across the state have an
39opportunity to benefit from the program.
P19 1(B) Sets minimum organizational capacity standards that
2applicants must meet
in order to receive an allocation of authority
3to designate qualified equity investments including, but not limited
4to, its business strategy, targeted community outcomes,
5capitalization strategy, and management capacity.
6(C) Considers the qualified community development entity’s
7prior qualified low-income community investments under Section
845D of the Internal Revenue Code.
9(D) Considers the qualified community development entity’s
10prior qualified low-income community investments under this
11section, including subparagraph (D) of paragraph (5).
12(4) (A) Subject to subdivision (h), GO-Biz shall begin accepting
13applications on or before May 15, 2017, and shall award authority
14to designate qualified equity investments annually through 2029.
15(B) In the instance where GO-Biz determines that an application
16is incomplete, the qualified community development entity shall
17be given five business days to provide the omitted information.
18(5) (A) In the 2017 awards cycle, GO-Biz shall award authority
19to designate qualified equity investments to qualified community
20development entities described in paragraph (2) of subdivision (c)
21in the order applications are received by GO-Biz. Applications
22received on the same day shall be deemed to have been received
23simultaneously.
24(B) In the 2018 to 2029 award cycles, inclusive, at least 60
25percent of the authority to designate qualified equity investments
26shall be awarded pursuant to subparagraph (A). At the discretion
27of GO-Biz, a higher percentage of authority to designate qualified
28equity investments may be awarded pursuant to subparagraph (A).
29(C) GO-Biz shall award up to 40 percent of the authority to
30designate qualified equity investments in the 2018 to 2029,
31inclusive, award cycles, to qualified community development
32entities on a competitive basis using blind scoring and a review
33committee that is composed of community development finance
34practitioners and members having demonstrated experience in
35assessing organizational business strategy, community outcomes,
36capitalization strategy, and management capacity. A member of
37the review committee shall not have a financial interest, which
38includes, but is not limited to, asking, consenting, or agreeing to
39receive any commission, emolument, gratuity, money, property,
40or thing of value for his or her own use, benefit, or personal
P20 1advantage for procuring or endeavoring to procure for any person,
2partnership, joint venture, association, or corporation any qualified
3equity investment or other assistance from any applicant.
4(D) (i) For qualified equity investments derived from the 2017
5to 2029, inclusive, awards cycles, pursuant to subparagraphs (A),
6(B), and (C), a qualified community development entity shall invest
7at least 15 percent of the qualified equity investment in a qualified
8low-income community business in consultation or in partnership
9with either of the following:
10(I) A qualified community development entity certified under
11Section 45D of the Internal Revenue Code that has not received a
12federal New Markets Tax Credit allocation on or after January 1,
132012, and has either a local service area that includes one or more
14California communities or a California statewide service area, but
15excluding qualified community development entities with a
16national service area.
17(II) A nonprofit organization that does the following:
18(ia) Is tax exempt under Section 23701.
19(ib) Is registered with the Registry of Charitable Trusts, which
20is administered by the Attorney General.
21(ic) Has articles of incorporation or articles of organization that
22state the primary mission of the organization is focused on
23improving the economic well-being of low-income communities
24or individuals.
25(id) Has bylaws that provide that the organization maintains
26accountability to residents of low-income communities through
27their representation on any governing board or on an advisory
28board of the nonprofit organization.
29(ii) The 15-percent investment shall be calculated by multiplying
30the total purchase price of the qualified
equity investments issued
31by the qualified community development entity by 15 percent.
32Each community development entity application shall indicate
33how the qualified community development entity will meet this
34requirement.
35(E) In making competitive awards of authority to designate
36qualified equity investments, priority shall be given to applications
37that can demonstrate that the qualified equity investment authority
38will allow the qualified community development entity to undertake
39qualified low-income community investments in rural, suburban,
40or urban areas that have been historically underserved and result
P21 1in the primary benefit to the hardest to serve and undercapitalized
2lower income populations, or in activities that support
3neighborhood revitalization strategies driven by local grassroots
4stakeholders in multiple low-income communities across one or
5more regions or the state for the purpose of scaling economic
6development activities that
compliment regional industry clusters
7that result in the greatest benefit to the largest number of lower
8income individuals.
9(F) (i) For applications described in subparagraph (A), in the
10event requests for authority to designate qualified equity
11investments exceed the applicable annual allocation limitation,
12GO-Biz shall certify, consistent with remaining qualified equity
13investment capacity, qualified equity investments of applicants in
14proportionate percentages based upon the ratio of the amount of
15qualified equity investments requested in such applications to the
16total amount of qualified equity investments requested in all such
17applications received on the same day.
18(ii) If a pending request cannot be fully certified due to this
19limit, GO-Biz shall certify the portion that may be certified unless
20the qualified community development entity elects to
withdraw
21its request rather than receive partial certification.
22(G) An approved applicant may transfer all or a portion of its
23certified qualified equity investment authority to its controlling
24entity or any subsidiary qualified community development entity
25of the controlling entity, provided that the applicant and the
26transferee notify GO-Biz within 30 calendar days of such transfer
27and include the information required in the application with respect
28to such transferee with such notice. The transferee shall be subject
29to the same rules, requirements, and limitations applicable to the
30transferor.
31(H) Within 200 calendar days of GO-Biz sending notice of
32certification, the qualified community development entity or any
33transferee, under subparagraph (G), shall issue the qualified equity
34investment and receive cash in the amount of the certified amount.
35The qualified community
development entity or transferee, under
36subparagraph (G), shall provide GO-Biz with evidence of the
37receipt of the cash investment within 205 calendar days of the
38applicant receiving notice of certification. If the qualified
39community development entity or any transferee, under
40subparagraph (G), does not receive the cash investment and issue
P22 1the qualified equity investment within 200 calendar days of GO-Biz
2sending the certification notice, the certification shall lapse and
3the entity may not issue the qualified equity investment without
4reapplying to GO-Biz for certification. Lapsed certifications revert
5back to GO-Biz and shall be reissued in the following order:
6(i) First, pro rata to applicants whose qualified equity investment
7allocations were reduced pursuant to subparagraph (F) under the
8annual allocation limitation of forty million dollars ($40,000,000)
9in paragraph (4) of subdivision (c).
10(ii) Thereafter, in accordance with the application process.
11(I) A qualified community development entity that issues
12qualified equity investments shall notify GO-Biz of the names of
13taxpayers that are eligible to utilize tax credits pursuant to this
14section and any transfer of a qualified equity investment.
15(6) (A) A qualified community development entity that issues
16qualified equity investments shall submit a report to GO-Biz that
17provides documentation as to the investment of at least 85 percent
18of the funds being deployed within one year in qualified
19low-income community investments in qualified active low-income
20community businesses located in California. Such report shall
21include all of the following:
22(i) A bank statement of such
qualified community development
23entity evidencing each qualified low-income community
24investment.
25(ii) Evidence that such business was a qualified active
26low-income community business at the time of such qualified
27low-income community investment.
28(iii) Evidence that the community development entity complied
29with subparagraph (D) of paragraph (5).
30(iv) Evidence that each qualified low-income community
31investment was determined to have a positive revenue impact on
32the state. This requirement does not apply to reinvestments of
33redeemed qualified low-income investments.
34(v) Any other information required by GO-Biz as being
35necessary to meet the requirements of this section.
36(B) Thereafter, the
qualified community development entity
37shall submit an annual report to GO-Biz during the seven years
38following submittal of the report, pursuant to subparagraph (A).
39No annual report shall be due prior to the first anniversary of the
P23 1initial credit allowance date. The report shall include, but is not
2limited to, the following:
3(i) The social, environmental, and economic impact the credit
4had on the low-income community during the report period and
5cumulatively.
6(ii) The amount of moneys used for qualified low-income
7investments in qualified low-income community businesses.
8(iii) The number of employment positions created and retained
9as a result of qualified low-income community investments and
10the average annual salary of such positions.
11(iv) The
number of operating businesses assisted as a result of
12qualified low-income community investments, by industry and
13number of employees.
14(v) Number of owner-occupied real estate projects.
15(vi) Location of each qualified low-income community business
16assisted by a qualified low-income community investment.
17(vii) Summary of the outcomes of each of the revenue impact
18assessments undertaken by the qualified community development
19entity during the year.
20(viii) Any other information requested by GO-Biz.
21(e) (1) In the case where the credit allowed by this section
22exceeds the “net tax,” the excess may be carried over to reduce
23the “net tax” in the following year, and the six
succeeding years
24if necessary, until the credit is exhausted.
25(2) A taxpayer allowed a credit under this section for a qualified
26equity investment shall not be eligible for any other credit under
27this part with respect to that investment.
28(3) The credit allowed under this section may be in addition to
29any credit allowed under Section 45D of the Internal Revenue
30Code.
31(f) GO-Biz shall annually report on its Internet Web site the
32information provided by low-income community development
33entities and on the geographic distribution of the qualified active
34low-income community businesses assisted.
35(g) (1) The Franchise Tax Board may prescribe any rules or
36regulations that may be necessary or appropriate to implement this
37section. The
Franchise Tax Board shall have access to any
38documentation held by GO-Biz relative to the application and
39reporting of a qualified community development entity.
P24 1(2) A qualifying community development entity shall provide
2GO-Biz with the name, address, and tax identification number of
3each investor and entity for which a qualified equity investment
4was designated by the qualifying community development entity,
5pursuant to this section. GO-Biz shall provide this information to
6the Franchise Tax Board in a manner determined by the Franchise
7Tax Board.
8(h) (1) The credit authorized by this section shall only be
9allowed for those taxable years for which moneys are appropriated
10to GO-Biz to administer the California New Markets Tax Credit
11pursuant to 18410.3 for that taxable year. The appropriation shall
12specifically identify the California New Markets Tax
Credit.
13(2) For those taxable years for which those moneys are
14appropriated pursuant to subdivision (1), GO-Biz shall post notice
15of the appropriation on the homepage of its Internet Web site and
16send notice of such appropriation to the Secretary of State and the
17Legislative Counsel.
18(i) This section shall be repealed on December 1, 2029.
Section 18410.3 is added to the Revenue and Taxation
20Code, to read:
(a) The California New Markets Tax Credit Fund is
22hereby established in the State Treasury.
23(b) Upon annual appropriation, moneys in the fund shall be used
24for the purposes described in subdivision (d) of Section 12283,
25subdivision (d) of Section 17053.9, and subdivision (d) of Section
2623622.9.
Section 23622.9 is added to the Revenue and Taxation
28Code, to read:
(a) There is hereby created the California New
30Markets Tax Credit Program as provided in this section, Section
3112283, and Section 17053.9. The purpose of this program is to
32stimulate private sector investment in lower income communities
33by providing a tax incentive to community and economic
34development entities that can be leveraged by the entity to attract
35private sector investment that in turn will be deployed by providing
36financing and technical assistance to small- and medium-size
37businesses and the development of commercial, industrial, and
38community development projects, including, but not limited to,
39facilities for nonprofit service organizations, light manufacturing,
40and mixed-use and transit-oriented development. GO-Biz shall
P25 1administer this program as
provided in this section, Section 12283,
2and Section 17053.9. The Director of GO-Biz may delegate the
3administration of all or portions of the program within GO-Biz.
4(b) (1) For taxable years beginning on or after January 1, 2017,
5and before January 1, 2029, and subject to subdivision (h), there
6shall be allowed as a credit against the “tax,” as defined in Section
723036, in an amount determined in accordance with Section 45D
8of the Internal Revenue Code, relating to the new markets tax
9credit, as modified in this section.
10(2) For the purposes of this section, “GO-Biz” means the
11Governor’s Office of Business and Economic Development.
12(c) Section 45D of the Internal Revenue Code is modified as
13follows:
14(1) Section 45D(a)(2) of the
Internal Revenue Code, relating to
15applicable percentage, is modified by substituting for “(A) 5
16percent with respect to the first 3 credit allowance dates, and (B)
176 percent with respect to the remainder of the credit allowance
18dates” with the following:
19(A) Zero percent with respect to the first two credit allowance
20dates.
21(B) Seven percent with respect to the third credit allowance
22date.
23(C) Eight percent with respect to the remainder of the credit
24allowance dates.
25(2) (A) Section 45D(c)(1) of the Internal Revenue Code, relating
26to qualified community development entity, is modified to only
27include a qualified community development entity, that is certified
28by the Secretary of the Treasury, and its subsidiary qualified
29
community development entities that have entered into an
30allocation agreement with the Community Development Financial
31Institutions Fund of the United States Treasury Department, with
32respect to credits authorized by Section 45D of the Internal
33Revenue Code, that includes California within the service area and
34is dated on or after January 1, 2012.
35(B) Section 45D(c)(2) of the Internal Revenue Code, relating
36to special rules for certain organizations, is modified to only
37include a specialized small business investment company or
38community development financial institution that entered into an
39allocation agreement with the Community Development Financial
40Institutions Fund of the United States Treasury Department, with
P26 1respect to credits authorized by Section 45D of the Internal
2Revenue Code, that includes California within the service area and
3is dated on or after January 1, 2012.
4(3) The term “qualified active low-income community business,”
5as defined in Section 45D(d)(2) of the Internal Revenue Code, is
6modified as follows:
7(A) By substituting “any low-income community in California”
8for “any low-income community” every place it appears in Section
945D of the Internal Revenue Code.
10(B) A qualified active low-income community business shall
11not include any business that derives, or projects to derive, 15
12percent or more of its annual revenue from the rental or sale of
13real estate. This exclusion does not apply to a business that is
14controlled by, or under common control with, another business if
15the second business: (i) does not derive or project to derive 15
16percent or more of its annual revenue from the rental or sale of
17real estate; and (ii) is the primary tenant of the real estate leased
18from the first business.
19(C) A qualified active low-income community business shall
20only include a business that, at the time the initial investment is
21made, has 250 or fewer employees and is located in one or more
22California low-income communities. The operating business shall
23meet all other conditions of a qualified active low-income
24community business, except as modified by this paragraph. This
25requirement does not apply to a business that is located on land
26and is controlled by, or under common control with, a federally
27recognized tribe.
28(D) A qualified active low-income community business shall
29only include a business located in census tracts with a poverty rate
30greater than 30 percent, or census tracts, if located within a
31nonmetropolitan area, with a median family income that does not
32exceed 60 percent of median family income for this state, or census
33tracts, if located within a metropolitan area,
with a median family
34income that does not exceed 60 percent of the greater of the
35California median family income or the metropolitan area median
36family income, or census tracts with unemployment rates at least
371.5 times the national average.
38(E) A qualified active low-income community business shall
39not include any business that operates or derives revenues from
P27 1the operation of a country club, gaming establishment, massage
2parlor, liquor store, or golf course.
3(F) A qualified active low-income community business shall
4not include a sexually oriented business. A “sexually oriented
5business” means a nightclub, bar, restaurant, or similar commercial
6enterprise that provides for an audience of two or more individuals
7live nude entertainment or live nude performances where the nudity
8is a function of everyday business operations and where nudity is
9a planned and intentional part of
the entertainment or performance.
10“Nude” means clothed in a manner that leaves uncovered or visible,
11through less than fully opaque clothing, any portion of the genitals
12or, in the case of a female, any portion of the breasts below the
13top of the areola of the breasts.
14(G) A qualified active low-income community business shall
15not include a charter school.
16(4) Section 45D(f) of the Internal Revenue Code, relating to
17national limitation on amount of investments designated, is
18modified as follows:
19(A) The following shall apply in lieu of the provisions of Section
2045D(f)(1) of the Internal Revenue Code: The aggregate amount
21of qualified equity investments that may be allocated in any
22calendar year for purposes of this section, Section 12283, and
23Section 17053.9 shall be an amount as determined by GO-Biz in
24consultation
with the Department of Finance based upon any
25unused portion of the one hundred million dollars ($100,000,000)
26in exclusions, authorized pursuant to Section 6010.8, as determined
27by the California Alternative Energy and Advanced Transportation
28Financing Authority pursuant to Section 26011.9 of the Public
29Resources Code and reported to GO-Biz, not to exceed an amount
30based upon a credit of forty million dollars ($40,000,000). GO-Biz
31shall limit the allocation of investments that may be designated
32under this section, Section 12283, and Section 17053.9 to a
33cumulative total amount based on credits of no more than two
34hundred million dollars ($200,000,000). The allocation of any
35undesignated qualified equity investments shall be returned to
36GO-Biz by March 1 of the year following allocation and the value
37of the undesignated qualified equity investment shall be available
38for allocation in the following calendar years in accordance with
39the application process. Any qualified equity investment
40attributable to
recaptured credits shall be available to GO-Biz on
P28 1March 1 of the year following recapture and shall be available for
2allocation in the following calendar years in accordance with clause
3(ii) of subparagraph (B) of paragraph (5). Reallocated qualified
4equity investments attributable to recapture credits shall not count
5against the annual or the cumulative limit.
6(B) The references to “the Secretary” in Section 45D(f)(2) of
7the Internal Revenue Code, relating to allocation of limitation, is
8modified to read “GO-Biz.”
9(C) The last sentence of Section 45D(f)(3) of the Internal
10Revenue Code, relating to carryover of unused limitation, shall
11not apply.
12(5) (A) Section 45D(g)(2)(B) of the Internal Revenue Code,
13relating to credit recapture amount, is modified to substitute
14“Section 19101 of this code”
for “Section 6621.”
15(B) Section 45D(g)(3) of the Internal Revenue Code, relating
16to recapture event, is modified to add the following:
17(i) The qualified community development entity fails to comply
18with subparagraph (D) of paragraph (5) of subdivision (d). In this
19case, recapture shall be 100 percent of the credit.
20(ii) GO-Biz shall establish a process, in consultation with the
21Franchise Tax Board, for the recapture of credits allowed under
22this section from the entity that claimed the credit on a return.
23(iii) Recaptured qualified equity investments revert back to
24GO-Biz and shall be reissued. The reissue shall not count toward
25the annual or cumulative allocation limitation. The reissue shall
26be done in the following order:
27(I) First, pro rata to applicants whose qualified equity investment
28allocations were reduced pursuant to subparagraph (F) of paragraph
29(5) of subdivision (d) by the annual allocation limitation.
30(II) Thereafter, in accordance with the application process.
31(iv) Enforcement of each of the recapture provisions shall be
32subject to a six-month cure period.
33(d) (1) GO-Biz shall adopt guidelines necessary or appropriate
34to carry out its responsibilities with respect to the allocation,
35monitoring, and management of the tax credit program authorized
36by this section.
37(2) (A) GO-Biz shall establish and impose reasonable fees upon
38entities that apply for the
allocation pursuant to this subdivision
39that in the aggregate defray the cost of reviewing applications for
40the program. GO-Biz may impose other reasonable fees upon
P29 1entities that receive the allocation pursuant to this subdivision that
2in the aggregate defray the cost of administering the program.
3(B) The fees collected shall be deposited in the California New
4Markets Tax Credit Fund established in Section 18410.3.
5(3) In developing guidelines, GO-Biz shall adopt an allocation
6process that does all of the following:
7(A) Creates an equitable distribution process that ensures that
8low-income community populations across the state have an
9opportunity to benefit from the program.
10(B) Sets minimum organizational capacity standards that
11applicants must meet
in order to receive an allocation of authority
12to designate qualified equity investments including, but not limited
13to, its business strategy, targeted community outcomes,
14capitalization strategy, and management capacity.
15(C) Considers the qualified community development entity’s
16prior qualified low-income community investments under Section
1745D of the Internal Revenue Code.
18(D) Considers the qualified community development entity’s
19prior qualified low-income community investments under this
20section, including subparagraph (D) of paragraph (5).
21(4) (A) Subject to subdivision (h), GO-Biz shall begin accepting
22applications on or before May 15, 2017, and shall award authority
23to designate qualified equity investments annually through 2029.
24(B) In the instance where GO-Biz determines that an application
25is incomplete, the qualified community development entity shall
26be given five business days to provide the omitted information.
27(5) (A) In the 2017 awards cycle, GO-Biz shall award authority
28to designate qualified equity investments to qualified community
29development entities described in paragraph (2) of subdivision (c)
30in the order applications are received by GO-Biz. Applications
31received on the same day shall be deemed to have been received
32simultaneously.
33(B) In the 2018 to 2029 award cycles, inclusive, at least 60
34percent of the authority to designate qualified equity investments
35shall be awarded pursuant to subparagraph (A). At the discretion
36of GO-Biz, a higher percentage of authority to designate qualified
37equity investments may be awarded pursuant to subparagraph (A).
38(C) GO-Biz shall award up to 40 percent of the authority to
39designate qualified equity investments in the 2018 to 2029,
40inclusive, award cycles, to qualified community development
P30 1entities on a competitive basis using blind scoring and a review
2committee that is composed of community development finance
3practitioners and members having demonstrated experience in
4assessing organizational business strategy, community outcomes,
5capitalization strategy, and management capacity. A member of
6the review committee shall not have a financial interest, which
7includes, but is not limited to, asking, consenting, or agreeing to
8receive any commission, emolument, gratuity, money, property,
9or thing of value for his or her own use, benefit, or personal
10advantage for procuring or endeavoring to procure for any person,
11partnership, joint venture, association, or corporation any qualified
12equity investment or other assistance from any applicant.
13(D) (i) For qualified equity investments derived from the 2017
14to 2029, inclusive, awards cycles, pursuant to subparagraphs (A),
15(B), and (C), a qualified community development entity shall invest
16at least 15 percent of the qualified equity investment in a qualified
17low-income community business in consultation or in partnership
18with either of the following:
19(I) A qualified community development entity certified under
20Section 45D of the Internal Revenue Code that has not received a
21federal New Markets Tax Credit allocation on or after January 1,
222012, and has either a local service area that includes one or more
23California communities or a California statewide service area, but
24excluding qualified community development entities with a
25national service area.
26(II) A nonprofit organization that does the following:
27(ia) Is tax exempt under Section 23701.
28(ib) Is registered with the Registry of Charitable Trusts, which
29is administered by the Attorney General.
30(ic) Has articles of incorporation or articles of organization that
31state the primary mission of the organization is focused on
32improving the economic well-being of low-income communities
33or individuals.
34(id) Has bylaws that provide that the organization maintains
35accountability to residents of low-income communities through
36their representation on any governing board or on an advisory
37board of the nonprofit organization.
38(ii) The 15-percent investment shall be calculated by multiplying
39the total purchase price of the qualified
equity investments issued
40by the qualified community development entity by 15 percent.
P31 1Each community development entity application shall indicate
2how the qualified community development entity will meet this
3requirement.
4(E) In making competitive awards of authority to designate
5qualified equity investments, priority shall be given to applications
6that can demonstrate that the qualified equity investment authority
7will allow the qualified community development entity to undertake
8qualified low-income community investments in rural, suburban,
9or urban areas that have been historically underserved and result
10in the primary benefit to the hardest to serve and undercapitalized
11lower income populations, or in activities that support
12neighborhood revitalization strategies driven by local grassroots
13stakeholders in multiple low-income communities across one or
14more regions or the state for the purpose of scaling economic
15development activities that
compliment regional industry clusters
16that result in the greatest benefit to the largest number of lower
17income individuals.
18(F) (i) For applications described in subparagraph (A), in the
19event requests for authority to designate qualified equity
20investments exceed the applicable annual allocation limitation,
21GO-Biz shall certify, consistent with remaining qualified equity
22investment capacity, qualified equity investments of applicants in
23proportionate percentages based upon the ratio of the amount of
24qualified equity investments requested in such applications to the
25total amount of qualified equity investments requested in all such
26applications received on the same day.
27(ii) If a pending request cannot be fully certified due to this
28limit, GO-Biz shall certify the portion that may be certified unless
29the qualified community development entity elects to
withdraw
30its request rather than receive partial certification.
31(G) An approved applicant may transfer all or a portion of its
32certified qualified equity investment authority to its controlling
33entity or any subsidiary qualified community development entity
34of the controlling entity, provided that the applicant and the
35transferee notify GO-Biz within 30 calendar days of such transfer
36and include the information required in the application with respect
37to such transferee with such notice. The transferee shall be subject
38to the same rules, requirements, and limitations applicable to the
39transferor.
P32 1(H) Within 200 calendar days of GO-Biz sending notice of
2certification, the qualified community development entity or any
3transferee, under subparagraph (G), shall issue the qualified equity
4investment and receive cash in the amount of the certified amount.
5The qualified community
development entity or transferee, under
6subparagraph (G), shall provide GO-Biz with evidence of the
7receipt of the cash investment within 205 calendar days of the
8applicant receiving notice of certification. If the qualified
9community development entity or any transferee, under
10subparagraph (G), does not receive the cash investment and issue
11the qualified equity investment within 200 calendar days of GO-Biz
12sending the certification notice, the certification shall lapse and
13the entity may not issue the qualified equity investment without
14reapplying to GO-Biz for certification. Lapsed certifications revert
15back to GO-Biz and shall be reissued in the following order:
16(i) First, pro rata to applicants whose qualified equity investment
17allocations were reduced pursuant to subparagraph (F) under the
18annual allocation limitation of forty million dollars ($40,000,000)
19in paragraph (4) of subdivision (c).
20(ii) Thereafter, in accordance with the application process.
21(I) A qualified community development entity that issues
22qualified equity investments shall notify GO-Biz of the names of
23taxpayers that are eligible to utilize tax credits pursuant to this
24section and any transfer of a qualified equity investment.
25(6) (A) A qualified community development entity that issues
26qualified equity investments shall submit a report to GO-Biz that
27provides documentation as to the investment of at least 85 percent
28of the funds being deployed within one year in qualified
29low-income community investments in qualified active low-income
30community businesses located in California. Such report shall
31include all of the following:
32(i) A bank statement of such
qualified community development
33entity evidencing each qualified low-income community
34investment.
35(ii) Evidence that such business was a qualified active
36low-income community business at the time of such qualified
37low-income community investment.
38(iii) Evidence that the community development entity complied
39with subparagraph (D) of paragraph (5).
P33 1(iv) Evidence that each qualified low-income community
2investment was determined to have a positive revenue impact on
3the state. This requirement does not apply to reinvestments of
4redeemed qualified low-income investments.
5(v) Any other information required by GO-Biz as being
6necessary to meet the requirements of this section.
7(B) Thereafter, the
qualified community development entity
8shall submit an annual report to GO-Biz during the seven years
9following submittal of the report, pursuant to subparagraph (A).
10No annual report shall be due prior to the first anniversary of the
11initial credit allowance date. The report shall include, but is not
12limited to, the following:
13(i) The social, environmental, and economic impact the credit
14had on the low-income community during the report period and
15cumulatively.
16(ii) The amount of moneys used for qualified low-income
17investments in qualified low-income community businesses.
18(iii) The number of employment positions created and retained
19as a result of qualified low-income community investments and
20the average annual salary of such positions.
21(iv) The
number of operating businesses assisted as a result of
22qualified low-income community investments, by industry and
23number of employees.
24(v) Number of owner-occupied real estate projects.
25(vi) Location of each qualified low-income community business
26assisted by a qualified low-income community investment.
27(vii) Summary of the outcomes of each of the revenue impact
28assessments undertaken by the qualified community development
29entity during the year.
30(viii) Any other information requested by GO-Biz.
31(e) (1) In the case where the credit allowed by this section
32exceeds the “tax,” the excess may be carried over to reduce the
33“tax” in the following year, and the six
succeeding years if
34necessary, until the credit is exhausted.
35(2) A taxpayer allowed a credit under this section for a qualified
36equity investment shall not be eligible for any other credit under
37this part with respect to that investment.
38(3) The credit allowed under this section may be in addition to
39any credit allowed under Section 45D of the Internal Revenue
40Code.
P34 1(f) GO-Biz shall annually report on its Internet Web site the
2information provided by low-income community development
3entities and on the geographic distribution of the qualified active
4low-income community businesses assisted.
5(g) (1) The Franchise Tax Board may prescribe any rules or
6regulations that may be necessary or appropriate to implement this
7section. The
Franchise Tax Board shall have access to any
8documentation held by GO-Biz relative to the application and
9reporting of a qualified community development entity.
10(2) A qualifying community development entity shall provide
11GO-Biz with the name, address, and tax identification number of
12each investor and entity for which a qualified equity investment
13was designated by the qualifying community development entity,
14pursuant to this section. GO-Biz shall provide this information to
15the Franchise Tax Board in a manner determined by the Franchise
16Tax Board.
17(h) (1) The credit authorized by this section shall only be
18allowed for those taxable years for which moneys are appropriated
19to GO-Biz to administer the California New Markets Tax Credit
20pursuant to 18410.3 for that taxable year. The appropriation shall
21specifically identify the California New Markets Tax
Credit.
22(2) For those taxable years for which those moneys are
23appropriated pursuant to subdivision (1), GO-Biz shall post notice
24of the appropriation on the homepage of its Internet Web site and
25send notice of such appropriation to the Secretary of State and the
26Legislative Counsel.
27(i) This section shall be repealed on December 1, 2029.
For the purposes of complying with Section 41 of the
29Revenue and Taxation Code, the Legislature finds and declares as
30follows:
31(a) Specific goals, purposes, and objectives: attract private sector
32investment in lower income communities in California.
33(b) Performance indicators:
34(1) Amount of qualified low-income community investments
35issued.
36(2) Amount of dollars deployed in qualified low-income
37community investments.
38(3) Number of operating businesses assisted as a result of
39qualified
low-income community investments.
P35 1(4) Number of employment positions created and retained as a
2result of qualified low-income community investments and the
3average annual salary of those positions.
4(c) Data collection requirements and baseline measurements:
5(1) The baseline measurements include:
6(A) The amount of tax credits issued in the year.
7(B) The unemployment rate of the area.
8(C) The poverty rate of the area.
9(2) Data to collect includes:
10(A) The amount tax credits issued in the year.
11(B) The number of operating businesses in a low-income
12community assisted.
13(C) The number of jobs created and retained as a result of
14qualified low-income community investments.
The provisions of this act are severable. If any
16provision of this act or its application is held invalid, that invalidity
17shall not affect other provisions or applications that can be given
18effect without the invalid provision or application.
This act provides for a tax levy within the meaning of
20Article IV of the Constitution and shall go into immediate effect.
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